Morning Report: 18 January 2018

GBP In the overnight market sterling briefly climbed to the highest point against the dollar since June 2016 on the back of dollar weakness, with the markets appearing to be increasingly confident that a wide-ranging trade deal will be eventually agreed for the UK before it officially leaves the European Union. Media reports had over the course of the past week indicated that the Spanish and Dutch finance ministers had agreed to push for a “soft” Brexit, and this morning a senior French finance official, Christian Noyer, stated his belief that Brexit would not be a “catastrophe” for the financial sector in the UK. This morning the RICS House Price Balance showed signs of a strong inflation of housing prices with a reading of 8% for the month December, helped by a less negative tone for London and the surrounding areas. The rest of the data calendar is empty today, which gives markets some time to prepare for the vital Retail Sales figures of Friday.

EUR After reaching fresh three year highs against the dollar yesterday early morning, the single currency gradually traded down during the day, while simultaneously losing ground against sterling as well. Final Eurozone Consumer Price Index figures came out exactly on expectations yesterday, reminding markets that core inflation pressures in the euro area remain weak. Meanwhile European Central Bank policymaker Ewald Nowotny stated that the euro’s strength is “not helpful”, and reiterated that while the ECB did not have an exchange rate target, they are nonetheless “observing” the exchange rate. This morning German Bundesbank President Jens Weidmann gave a speech, though with little noticeable effects on markets.

USD The US dollar had a strong morning, an after lunch dip and found renewed powers in the evening which ultimately helped it to close higher against euro and sterling, as well as against other major currencies. The Capacity Utilisation Rate went up to 77.9%, the highest point since February 2015, showing that slack is increasingly disappearing from the US industrial sector. Elsewhere China has reduced its treasury holdings to a four month low, which can be a sign of the diminished appetite of the Chinese for US debt, or a sign to Trump that they can hurt the US when he imposes trade sanctions on the Asian giant. Today at 13:30 GMT we have the Building Permits, Housing Starts, Philly Fed Manufacturing Index and the weekly Unemployment claims, followed at 16:00 GMT by crude oil inventories.

CAD The loonie was strapped on a rollercoaster yesterday surrounding the Bank of Canada’s Rate Announcement, but now the dust has settled it trades close to the opening levels of yesterday against the dollar. Yesterday’s rate hike was first interpreted as dovish by markets, but as the Monetary Policy Report was being digested, the loonie found some solid footing. This was thanks to some hawkish nuggets buried deep inside the report, like the BoC expecting that the inflation will remain close to the 2% target for the coming period. This afternoon at 13:30 GMT the Canadian ADP Non-Farm Employment Change is expected to make it to our screens

UK news

Guardian: Taxpayers to foot £200bn bill for PFI contracts – audit office Taxpayers will be forced to hand over nearly £200bn to contractors under private finance deals for at least 25 years, according to a report by Whitehall’s spending watchdog.

Telegraph: Britain will pay France £44m to help it police border at Calais. Britain will on Thursday agree to pay France £44.5?million to continue to police the border at Channel ports as Theresa May bowed to pressure from Emmanuel Macron.